82R8713 YDB-F

By: Woolley H.B. No. 2111

A BILL TO BE ENTITLED

AN ACT

relating to the operation of video lottery games by licensed horse and greyhound racetrack operators, to a defense for the operation of video lottery by Indian tribes, to the authority of the Texas Lottery Commission and the Texas Racing Commission, and to the conduct of gambling in this state; providing penalties.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. The legislature finds and declares the following:

(1) The horse industry and agriculture industry have been vital components of this state's economy since the 19th century.

(2) The horse industry is an important element of the state's unique fabric, and it is imperative that the legislature take steps to bolster this industry.

(3) Live racing greatly benefits the horse industry of this state by providing critical financial and other support to horse shows and events, breeding programs, and employment in tourism and agricultural enterprises in this state.

(4) The operation of video lottery games at horse racetracks in the neighboring states of Louisiana, New Mexico, and Oklahoma provides racetracks in those states with an insurmountable economic advantage over racetracks in this state, resulting in much larger purse amounts in those states compared to the purse amounts offered by the racetracks in this state.

(5) The consequence of this economic disparity in purse amounts has been the exodus of horses, breeders, and other horse professionals to states with larger purse amounts, placing the horse industry in this state at an overwhelming disadvantage that threatens the very existence of a vital horse industry in this state.

(6) Authorizing video lottery games at licensed horse and greyhound racetracks in this state will:

(A) remedy this economic disparity by increasing the purse amounts in this state and delivering a huge economic stimulus to this state through increased infrastructure and employment in and around licensed racetracks and throughout this state;

(B) boost horse showing and breeding programs;

(C) increase employment in tourism;

(D) support programs to foster horse and greyhound breeding; and

(E) improve the living and working conditions of personnel who work in the horse industry.

SECTION 2. Section 466.002, Government Code, is amended to read as follows:

Sec. 466.002. DEFINITIONS. In this chapter:

(1) "Commission" means the Texas Lottery Commission.

(2) "Communication technology" means the methods used and the components employed to facilitate the transmission of information, including transmission and reception systems that transmit information through wire, cable, radio, microwave, light, optics, or computer data networks.

(3) "Dedicated account" means a separate fiduciary financial account that is restricted under this chapter according to:

(A) the source of the funds that may be deposited into the account; or

(B) the enumerated purposes for which money from the account may be spent.

(4) "Director" means a [the] director employed by the executive director under Section 467.031 [of the division].

(5) "Disable," with respect to video lottery terminals, means the process that causes a video lottery terminal to cease functioning on issuance of a shutdown command from the video lottery central system.

(6) "Distribute," with respect to video lottery terminals, means the sale, lease, marketing, offer, or other disposition of a video lottery terminal, an electronic computer component of a video lottery terminal, the cabinet in which a video lottery terminal is housed, video lottery equipment, or video lottery game software intended for use or play in this state.

(7) [(3)] "Division" means the lottery division established by the commission under Chapter 467.

(8) "Electronic storage medium," with respect to video lottery, means the electronic medium on which the operation software for a game playable on a video lottery terminal is stored in the form of erasable programmable read only memory, data storage devices typically considered alterable but through software or hardware means have been rendered unalterable, compact disc-read only memory, flash random access memory, or other technology medium the commission approves for use in or with a video lottery terminal.

(9) [(4)] "Executive director" means the executive director of the commission.

(10) "Horsemen's organization" has the meaning assigned by Section 1.03, Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).

(11) "House-banked game" means a game of chance in which the house:

(A) plays as a participant;

(B) competes against all players, collects from all losers, and pays all winners; and

(C) has an opportunity to win.

(12) "Indian lands" means land described by Section 47(f), Article III, Texas Constitution.

(13) "Institutional investor" means:

(A) a state or federal government pension plan; or

(B) any of the following that meets the requirements of a "qualified institutional buyer" as defined in Rule 144A, Securities Act of 1933 (15 U.S.C. Sections 77a-77aa), and the rules and regulations adopted under that rule by the United States Securities and Exchange Commission:

(i) a bank as defined by Section 3(a)(6), Securities Exchange Act of 1934 (15 U.S.C. Section 78c), and the rules and regulations adopted under that Act by the United States Securities and Exchange Commission;

(ii) an insurance company as defined by Section 2(a)(17), Investment Company Act of 1940 (15 U.S.C. Section 80a-2);

(iii) an investment company registered under Section 8, Investment Company Act of 1940 (15 U.S.C. Section 80a-8);

(iv) an employee benefit plan or pension fund subject to the Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1001 et seq.), excluding an employee benefit plan or pension fund sponsored by a publicly traded corporation registered with the Securities and Exchange Commission;

(v) a group composed entirely of persons specified by this subdivision; or

(vi) any other person the commission recognizes as an institutional investor for reasons consistent with the policies expressed in this chapter.

(14) [(5)] "Lottery" means the state lottery established and operated in accordance with the Texas Constitution under this chapter and includes the operation of a state-controlled video lottery system [procedures operated by the state under this chapter through which prizes are awarded or distributed by chance among persons who have paid, or unconditionally agreed to pay, for a chance or other opportunity to receive a prize].

(15) [(6)] "Lottery game" means an activity conducted lawfully and in accordance with the Texas Constitution and this chapter that is controlled by this state as part of the lottery and through which prizes are awarded or distributed by chance to persons who have paid or unconditionally agreed to pay, or who otherwise participate in a game, for a chance or other opportunity to receive a prize [includes a lottery activity].

(16) [(7)] "Lottery operator" means a person selected under Section 466.014(b) to operate a lottery game.

(17) "Manufacture," with respect to video lottery terminals, means to design, assemble, fabricate, produce, program, or make modifications to a video lottery terminal, an electronic computer component of a video lottery terminal, the cabinet in which a video lottery terminal is housed, video lottery equipment, or video lottery game software intended for use or play in this state.

(18) "Net terminal income" means the total amount of money paid to play video lottery games less the value of all credits redeemed, including any progressive prizes and bonuses, by the players of the video lottery games at a video lottery terminal establishment. Promotional prizes unrelated to video lottery game wagers that are offered by a video lottery retailer or video lottery manager may not be deducted or otherwise considered credits redeemed for money by players for the purpose of determining net terminal income.

(19) "Pari-mutuel license holder" means a person licensed to conduct wagering on a greyhound race or a horse race under the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).

(20) "Performance horse development fund" means a dedicated account in which a portion of net terminal income is deposited as provided by Subchapter K and that may be spent only for the benefit of certain non-racing horse activities in this state.

(21) "Person" means, for purposes of video lottery operations, any natural person, corporation, association, trust, partnership, limited partnership, joint venture, subsidiary, or other entity, regardless of its form, structure, or nature.

(22) [(8)] "Player" means a person who contributes any part of the consideration for a ticket or to play a video lottery game under this chapter.

(23) "Racetrack" has the meaning assigned by Section 1.03, Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).

(24) "Racing facilities agreement" means a written agreement that:

(A) specifies the amount of money or the percentage of revenue to be transferred by a racetrack and from the applicable Texas canine development fund or Texas equine development fund to the racing facilities capital improvement account; and

(B) provides a plan for the use of the money deposited in the racing facilities capital improvement account.

(25) [(9)] "Sales agent" or "sales agency" means a person licensed under this chapter to sell tickets.

(26) "Slot machine" means a mechanical, electrical, or other type of device, contrivance, or machine not connected to the video lottery central system that plays or operates on insertion of a coin, currency, token, or similar object or on payment of any other consideration, and the play or operation of which, through the skill of the operator, by chance, or both, may deliver to the person playing or operating the machine, or entitle the person to receive, cash, premiums, merchandise, tokens, or any other thing of value, whether the payoff is made automatically from the machine or in any other manner. The term does not include any equipment, machine, technological aid, or other device used or authorized in connection with the play of bingo under Chapter 2001, Occupations Code, or authorized under other law.

(27) "State horse breed registry" has the meaning assigned by Section 1.03, Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes). The term includes the organizations identified in Section 9.02, Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).

(28) "Substantial interest holder" means any of the following that is not a bona fide lender, bank, or other authorized or licensed lending institution that holds a mortgage or other lien acquired in the ordinary course of business or a vendor of the applicant or license holder that is not otherwise a substantial business holder:

(A) a person who directly, indirectly, or beneficially owns any interest in a privately owned corporation, association, trust, partnership, limited partnership, joint venture, subsidiary, or other entity, regardless of its form, structure, or nature;

(B) a person who directly, indirectly, or beneficially owns 10 percent or more of any publicly owned corporation, association, trust, partnership, limited partnership, joint venture, subsidiary, or other entity, regardless of its form, structure, or nature;

(C) a person associated with an applicant or license holder who the commission determines has the power or authority to:

(i) control the activities of the applicant or license holder; or

(ii) elect or select the executive director, the managers, the partners, or a majority of the board of directors of the applicant or license holder; and

(D) any key personnel of a video lottery retailer or video lottery manager, including an executive director, officer, director, manager, member, partner, limited partner, executive, employee, or agent, who the commission determines has the power to exercise significant influence over decisions concerning any part of the applicant's or license holder's business operation.

(29) "Texas canine development fund" means, for a greyhound racetrack that operates a video lottery terminal establishment, the dedicated account in which a portion of the net terminal income is deposited as provided by Subchapter K.

(30) "Texas equine development fund" means, for a horse racetrack that operates a video lottery terminal establishment, the dedicated account in which a portion of the net terminal income is deposited as provided by Subchapter K.

(31) [(10)] "Ticket" means any tangible evidence issued to provide participation in a lottery game authorized by this chapter other than a video lottery game.

(32) "Video lottery central system" means the system of procedures and facilities operated and controlled by the commission that is designed to link together all video lottery terminals operated in this state and allows the commission to continuously monitor the activity of each video lottery terminal and to disable any video lottery terminal in this state.

(33) "Video lottery central system provider" means a person that, under a contract with the commission, provides the video lottery central system.

(34) "Video lottery equipment" means:

(A) a video lottery terminal;

(B) equipment, a component, or a contrivance used remotely or directly in connection with a video lottery terminal to:

(i) affect the reporting of gross revenue and other accounting information, including a device for weighing and counting money;

(ii) provide accounting, player tracking, bonuses, and in-house or wide-area prizes;

(iii) monitor video lottery terminal operations; and

(iv) provide for the connection of video lottery terminals to the video lottery central system; or

(C) any other communications technology or equipment necessary for the operation of a video lottery terminal.

(35) "Video lottery game" means an electromechanically or electronically simulated game displayed on a video lottery terminal the outcome of which is determined solely by chance based on a computer-generated random selection of winning combinations of symbols or numbers other than typical roulette, dice, or baccarat game themes associated with casino gambling, except that game themes displaying symbols that appear to roll on drums to simulate a classic casino slot machine or themes of other card games and keno may be used. The term includes video lottery games linked together between two or more video lottery terminals in one or more video lottery terminal establishments to provide progressive payments to winners of video lottery games.

(36) "Video lottery manager" means a person who is licensed by the commission under this chapter to manage a video lottery terminal establishment.

(37) "Video lottery retailer" means a racetrack or the operator of the premises of a pari-mutuel license holder at which a video lottery terminal establishment is located and that holds a video lottery retailer license under Subchapter K.

(38) "Video lottery system" has the meaning assigned to that term by Section 47a, Article III, Texas Constitution.

(39) "Video lottery terminal" means an interactive electronic device that is capable of displaying video lottery games.

(40) "Video lottery terminal establishment" means premises at which the operation of video lottery terminals is authorized by the commission under this chapter in accordance with a license.

(41) "Video lottery terminal provider" means a person in the business of manufacturing or distributing video lottery terminals in this state.

(42) "Video lottery ticket" means the evidence issued by a video lottery terminal to reflect a credit balance from the play of a video lottery game.

SECTION 3. Section 466.003(b), Government Code, is amended to read as follows:

(b) Any [A] contract or authorized agreement between the division and a lottery operator, the video lottery central system provider, a video lottery terminal provider, or a manufacturer or distributor of video lottery games under Section 466.014(b) must contain a provision allowing the contract or authorized agreement to be terminated without penalty should the division be abolished unless another state agency is assigned to regulate all video lottery game activity as required by this chapter.

SECTION 4. Section 466.004(a), Government Code, is amended to read as follows:

(a) A political subdivision of this state may not impose:

(1) a tax on the sale of a ticket;

(2) a tax on the payment of a prize under this chapter; [or]

(3) an ad valorem tax on tickets;

(4) a tax, fee, or other assessment on consideration paid to play a video lottery game; or

(5) a tax or fee for attendance or admission to a video lottery establishment or a racetrack at which a video lottery establishment is located unless specifically authorized by statute.

SECTION 5. Section 466.014, Government Code, is amended to read as follows:

Sec. 466.014. POWERS AND DUTIES OF COMMISSION AND EXECUTIVE DIRECTOR; CONTRACT AUTHORITY. (a) The commission and executive director have broad authority and shall exercise strict control and close supervision over [all] lottery games [conducted in this state] to promote and ensure integrity, security, honesty, and fairness in the operation and administration of the lottery.

(b) The executive director may contract with or employ a person to perform a function, activity, or service in connection with the operation of the lottery as prescribed by the executive director. A contract relating to the operation of video lottery must be consistent with Subchapter K. Except as provided by this subsection, a [A] person with whom the executive director contracts to operate a lottery game must be eligible for a sales agent license under this chapter [Section 466.155]. A person with whom the executive director contracts to provide the video lottery central system must be eligible under the same standards as those applicable to the registration or approval by the commission of a video lottery terminal provider in accordance with Subchapter K.

(c) The executive director may award a contract for lottery supplies, equipment, or services, including a contract under Subsection (b), pending the completion of any investigation and licensing, registration, or other affirmative regulatory approval authorized or required by this chapter. A contract awarded under this subsection must include a provision permitting the executive director to terminate the contract without penalty if the investigation reveals that the person to whom the contract is awarded would not be eligible for a sales agent license under Section 466.155 or with regard to video lottery does not satisfy the applicable requirements for licensing, registration, or other affirmative regulatory approval under Subchapter K.

SECTION 6. Section 466.015(b), Government Code, is amended to read as follows:

(b) The commission shall adopt rules to the extent they are not inconsistent with Chapters 551 and 552 governing the:

(1) security for the lottery and the commission, including the development of an internal security plan;

(2) apportionment of the total revenues from the sale of tickets and from all other sources in the amounts provided by this chapter;

(3) enforcement of prohibitions on the sale of tickets to or by an individual younger than 18 years of age or the sale of a video lottery game to or by an individual younger than 21 years of age; [and]

(4) enforcement of prohibitions on a person playing a lottery game by telephone; and

(5) enforcement of prohibitions provided by law on the sale of any purchase or play of a video lottery game.

SECTION 7. Section 466.017, Government Code, is amended to read as follows:

Sec. 466.017. AUDITS. (a) The commission [executive director] shall provide for a certified public accountant to conduct an independent audit of the commission's annual financial statements in accordance with generally accepted auditing standards that requires the accountant to express an opinion on the conformity of the financial statements with generally accepted accounting principles [for each fiscal year of all accounts and transactions of the lottery]. The certified public accountant may not have[, as determined by the executive director,] a significant financial interest in a sales agent, lottery vendor, [or] lottery operator, video lottery manager, video lottery retailer, video lottery terminal provider, or video lottery central system provider. The certified public accountant shall present an audit report to the executive director, the commission, the governor, the comptroller, and the legislature not later than the 30th day after the submission date for the annual financial report required by the General Appropriations Act. [The report must contain recommendations to enhance the earnings capability of the lottery and improve the efficiency of lottery operations.] The state auditor may review the results of and working papers related to the audit.

(b) The records of a [Each] lottery operator, sales agent, video lottery manager, video lottery retailer, video lottery terminal provider, or video lottery central system provider [operator's and sales agent's records] are subject to audit by the commission and the state auditor. For the purpose of carrying out this chapter, the executive director or state auditor may examine all books, records, papers, or other objects that the executive director or state auditor determines are necessary for conducting a complete examination under this chapter and may also examine under oath any officer, director, or employee of a lottery operator, [or] sales agent, video lottery manager, video lottery retailer, video lottery terminal provider, or video lottery central system provider. The executive director or state auditor may conduct an examination at the principal office or any other office of the person subject to the audit [lottery operator or sales agent] or may require the person [lottery operator or sales agent] to produce the records at the office of the commission or state auditor. If a sales agent, video lottery manager, video lottery retailer, video lottery terminal provider, or video lottery central system provider refuses to permit an examination or to answer any question authorized by this subsection, the executive director may summarily suspend the license or registration of the sales agent, video lottery manager, video lottery retailer, or video lottery terminal provider under Section 466.160 or Subchapter K until the examination is completed as required. Section 321.013(h) does not apply to an audit of a lottery operator, [or] sales agent, video lottery manager, video lottery retailer, video lottery terminal provider, or video lottery central system provider.

(c) To protect the state's financial interest, the commission shall adopt reporting, monitoring, and auditing requirements for revenue generated by video lottery games that is distributed to or used by an organization through an allocation specified under Subchapter K.

(d) The commission may adopt the requirements for an organization described by Subsection (c) only after consultation with the organization. In adopting the requirements, the commission shall give consideration to the concerns of the organization.

(e) An organization described by Subsection (c) shall annually file with the commission a copy of an audit, conducted by an independent certified public accountant, on the receipt and use by the organization of the revenue generated by video lottery games.

(f) The commission may review any records or books of an organization submitting an audit to the commission as required under Subsection (e) as the commission determines necessary to confirm or further investigate the findings of the audit.

(g) The commission, after notice and a hearing in accordance with Chapter 2001, may suspend or prohibit the transfer of money to an organization under Subchapter K if:

(1) the commission determines the organization has failed to comply with the requirements adopted under Subsection (c); or

(2) following the audit required under Subsection (e), the commission determines that material questions have been raised on the use of the money by the organization.

SECTION 8. Section 466.018, Government Code, is amended to read as follows:

Sec. 466.018. INVESTIGATIONS. The attorney general, the district attorney for Travis County, or the district attorney, criminal district attorney, or county attorney performing the duties of district attorney for the county in which the violation or alleged violation occurred may investigate a violation or alleged violation of this chapter and of the penal laws of this state by the commission or its employees, a sales agent, a lottery vendor, [or] a lottery operator, a video lottery manager, a video lottery retailer, a video lottery terminal provider, or a video lottery central system provider.

SECTION 9. Sections 466.020(c), (d), and (e), Government Code, are amended to read as follows:

(c) A security officer or investigator employed by the department of security or a peace officer who is working in conjunction with the commission or the Department of Public Safety in the enforcement of this chapter may:

(1) [,] without a search warrant, [may] search and seize a lottery vending machine, lottery computer terminal, video lottery terminal, or other lottery or gaming equipment that is located on premises for which a person holds a sales agent, video lottery retailer, or video lottery manager license issued under this chapter; or

(2) seize a lottery vending machine, lottery computer terminal, video lottery terminal, or other lottery or gaming equipment that is being used or is in the possession of any person in violation of this chapter.

(d) The Department of Public Safety or any other state or local law enforcement agency in this state, at the commission's request and in accordance with an interagency agreement, shall perform a full criminal background investigation of a prospective deputy or investigator of the department of security. The commission shall reimburse the agency [Department of Public Safety] for the actual costs of an investigation.

(e) At least once every two years, the executive director shall employ an independent firm that is experienced in security, including computer security and systems security, to conduct a comprehensive study of all aspects of lottery security, including:

(1) lottery personnel security;

(2) sales agent security;

(3) lottery operator and vendor security;

(4) security against ticket counterfeiting and alteration and other means of fraudulent winning;

(5) security of lottery drawings;

(6) lottery computer, data communications, database, and systems security;

(7) lottery premises and warehouse security;

(8) security of distribution of tickets;

(9) security of validation and payment procedures;

(10) security involving unclaimed prizes;

(11) security aspects of each lottery game;

(12) security against the deliberate placement of winning tickets in lottery games that involve preprinted winning tickets by persons involved in the production, storage, transportation, or distribution of tickets; [and]

(13) security of video lottery retailers, video lottery managers, video lottery terminal providers, and video lottery central system providers; and

(14) other security aspects of lottery operations, including video lottery game operations.

SECTION 10. Section 466.022, Government Code, is amended by amending Subsection (b) and adding Subsections (c), (d), (e), and (f) to read as follows:

(b) In addition to commission records excepted from disclosure under Chapter 552, the following information is confidential and is exempt from disclosure:

(1) security plans and procedures of the commission designed to ensure the integrity and security of the operation of the lottery;

(2) information of a nature that is designed to ensure the integrity and security of the selection of winning tickets or numbers in the lottery, other than information describing the general procedures for selecting winning tickets or numbers; [and]

(3) the street address and telephone number of a prize winner, if the prize winner has not consented to the release of the information; and

(4) information relating to all system operations of video lottery games, including the operation of the video lottery system, security related to video lottery games, and commission plans and procedures intended to ensure the integrity and security of the operation of video lottery games.

(c) Information that is confidential under Subsection (b)(4) includes information and data that:

(1) are furnished to the commission under Subchapter K or that may be otherwise obtained by the commission from any source;

(2) pertain to an applicant's criminal record, antecedents, and background and are furnished to or obtained by the commission from any source, including information obtained by the commission under Section 411.108(d);

(3) are provided to the commission, a commission employee, or an investigator acting on behalf of the commission by a governmental agency or an informer or on the assurance that the information will be held in confidence and treated as confidential;

(4) are obtained by the commission from a video lottery manager, video lottery retailer, video lottery terminal provider, or video lottery central system provider; or

(5) are prepared or obtained by an agent or employee of the commission relating to a license, certificate of registration, or renewal application, a finding of suitability, or any other affirmative regulatory approval required under Subchapter K.

(d) Information that qualifies as confidential under Subsection (b)(4) may be disclosed in whole or in part only as necessary to administer this chapter or under a court order. The commission, subject to appropriate procedures, may disclose the information and data to an authorized agent of a political subdivision of this state, the United States, another state or a political subdivision of another state, a tribal law enforcement agency, or the government of a foreign country.

(e) For the annual report required under Section 466.016, the commission may disclose a compilation of statistical information that is otherwise confidential under Subsection (b)(4) if the compilation does not disclose the identity of an applicant, license or registration holder, or video lottery establishment.

(f) Notwithstanding any other provision of state law, the information provided under Subsection (d) or (e) may not otherwise be disclosed without specific commission authorization.

SECTION 11. Section 466.024, Government Code, is amended to read as follows:

Sec. 466.024. PROHIBITED GAMES. (a) The executive director, [or] a lottery operator, a video lottery manager, a video lottery retailer, a video lottery terminal provider, or a video lottery central system provider may not establish or operate a lottery game in which the winner is chosen on the basis of the outcome of a live sports event.

(b) The [commission shall adopt rules prohibiting the] operation of any game using a video lottery machine or other gambling device that is not connected to the video lottery central system and regulated by this state as required by Section 47a, Article III, Texas Constitution, and this chapter is prohibited [machine].

(c) In this section, "sports[:

[(1) "Sports] event" means a football, basketball, baseball, or similar game, or a horse or dog race on which pari-mutuel wagering is allowed.

[(2) "Video lottery machine" or "machine" means any electronic video game machine that, upon insertion of cash, is available to play or simulate the play of a video game, including video poker, keno, and blackjack, using a video display and microprocessors in which the player may receive free games or credits that can be redeemed for cash, coins, or tokens, or that directly dispenses cash, coins, or tokens.]

SECTION 12. Section 466.025, Government Code, is amended to read as follows:

Sec. 466.025. REPORTS OF TICKETS SOLD, NET TERMINAL INCOME, AND PRIZES AWARDED. For each lottery game, other than a video lottery game, after the last date on which a prize may be claimed under Section 466.408(d), the director shall prepare a report that shows the total number of tickets sold and the number and amounts of prizes awarded in the game. The report must be available for public inspection. For video lottery games, the director shall prepare a weekly report that shows net terminal income for the preceding week.

SECTION 13. Section 466.103(a), Government Code, is amended to read as follows:

(a) Except as provided by Subsection (b), the executive director may not award a contract for the purchase or lease of facilities, goods, or services related to lottery operations to a person who:

(1) would be denied a license as a sales agent under Section 466.155; or

(2) with regard to video lottery equipment:

(A) is not a registered video lottery terminal provider if registration is required; or

(B) would be considered unsuitable to be a video lottery terminal provider under Subchapter K.

SECTION 14. Section 466.151(b), Government Code, is amended to read as follows:

(b) The executive director may establish a provisional license or other classes of licenses necessary to regulate and administer the quantity and type of lottery games provided at each licensed location of a sales agent.

SECTION 15. Subchapter E, Chapter 466, Government Code, is amended by adding Section 466.206 to read as follows:

Sec. 466.206. CRIMINAL HISTORY INVESTIGATION FOR VIDEO LOTTERY. Except as otherwise provided by this section, Sections 466.020 and 466.201, and Subchapter K, a criminal history investigation of a video lottery retailer, video lottery manager, video lottery terminal provider, or video lottery central system provider is governed by commission rules adopted under Subchapter K. As applicable, the commission shall consider information obtained through a criminal history investigation conducted under the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).

SECTION 16. Section 466.252, Government Code, is amended to read as follows:

Sec. 466.252. PLAYER [PURCHASE OF TICKET] AGREEMENT TO ABIDE BY RULES AND INSTRUCTIONS. (a) By purchasing a ticket in a particular lottery game or participating as a player in a lottery game, a player agrees to abide by and be bound by the commission's rules and instructions, including the rules or instructions applicable to the particular lottery game involved. The player also acknowledges that the determination of whether the player is a valid winner is subject to:

(1) the commission's rules, instructions, and claims procedures, including those developed for the particular lottery game involved; [and]

(2) any validation tests established by the commission for the particular lottery game involved; and

(3) the limitations and other provisions prescribed by this chapter.

(b) If the lottery uses tickets, an abbreviated form of the rules or a reference to the rules may appear on the tickets.

SECTION 17. Section 466.3011, Government Code, is amended to read as follows:

Sec. 466.3011. VENUE. Venue is proper in Travis County or any county in which venue is proper under Chapter 13, Code of Criminal Procedure, for:

(1) an offense under this chapter;

(2) an offense under the Penal Code, if the accused:

(A) is a lottery operator, lottery vendor, sales agent, video lottery manager, video lottery retailer, video lottery terminal provider, video lottery central system provider, or employee of the division; and

(B) is alleged to have committed the offense while engaged in lottery activities, including video lottery activities; or

(3) an offense that involves property consisting of or including lottery tickets under Title 7 or 11, Penal Code.

SECTION 18. Subchapter G, Chapter 466, Government Code, is amended by adding Section 466.3031 to read as follows:

Sec. 466.3031. UNAUTHORIZED OPERATION, USE, OR POSSESSION OF VIDEO LOTTERY TERMINAL. (a) A person may not operate, use, or possess a video lottery terminal unless the operation, use, or possession is expressly authorized by this chapter or other law.

(b) Except for transport to or from a video lottery establishment and as provided by this chapter or other law, a person commits an offense if the person operates, uses, or possesses any video lottery terminal that is not at all times connected to the video lottery central system or that does not generate revenue for this state, except funds retained by the commission to pay administrative costs. An offense under this subsection is a felony of the third degree.

(c) Notwithstanding Subsection (b), a video lottery retailer, video lottery manager, or registered or approved video lottery terminal provider may store or possess a video lottery terminal as authorized by the commission, and the commission may possess video lottery terminals for study and evaluation.

SECTION 19. Section 466.305(a), Government Code, is amended to read as follows:

(a) A sales agent, video lottery manager, or video lottery retailer, or an employee of a sales agent, video lottery manager, or video lottery retailer, commits an offense if the person intentionally or knowingly sells a ticket to another person or allows the person to play or conduct a game on a video lottery terminal by extending credit or lending money to the person to enable the person to purchase the ticket or play the game.

SECTION 20. The heading to Section 466.3051, Government Code, is amended to read as follows:

Sec. 466.3051. SALE [OF TICKET] TO OR PURCHASE OF LOTTERY TICKET BY PERSON YOUNGER THAN 18; PLAY OF VIDEO LOTTERY GAME BY PERSON YOUNGER THAN 21 [YEARS OF AGE].

SECTION 21. Section 466.3051, Government Code, is amended by adding Subsections (a-1) and (b-1) and amending Subsections (b) through (f) to read as follows:

(a-1) A video lottery manager, a video lottery retailer, or an employee of a video lottery manager or video lottery retailer commits an offense if the person intentionally or knowingly allows a person younger than 21 years of age to play a video lottery game.

(b) An individual who is younger than 18 years of age commits an offense if the individual:

(1) purchases a lottery ticket; or

(2) falsely represents the individual to be 18 years of age or older by displaying evidence of age that is false or fraudulent or misrepresents in any way the individual's age in order to purchase a lottery ticket.

(b-1) An individual who is younger than 21 years of age commits an offense if the individual:

(1) plays a video lottery game; or

(2) falsely represents the individual to be 21 years of age or older by displaying evidence of age that is false or fraudulent or misrepresents in any way the individual's age in order to play a video lottery game.

(c) A person 18 years of age or older may purchase a lottery ticket to give as a gift to another person, including an individual younger than 18 years of age.

(d) It is a defense to the application of Subsection (b) that the individual younger than 18 years of age is participating in an inspection or investigation on behalf of the commission or other appropriate governmental entity regarding compliance with this section. It is a defense to the application of Subsection (b-1) that the individual younger than 21 years of age is participating in an inspection or investigation on behalf of the commission or other appropriate governmental entity regarding compliance with this section.

(e) An offense under Subsection (a) or (a-1) is a Class C misdemeanor.

(f) An offense under Subsection (b) or (b-1) is punishable by a fine not to exceed $250.

SECTION 22. Section 466.306, Government Code, is amended to read as follows:

Sec. 466.306. FORGERY; ALTERATION OF TICKET. (a) A person commits an offense if the person intentionally or knowingly alters or forges a ticket or video lottery ticket.

(b) An offense under this section is a felony of the third degree unless it is shown on the trial of the offense that the prize alleged to be authorized by the ticket or video lottery ticket forged or altered is greater than $10,000, in which event the offense is a felony of the second degree.

SECTION 23. Section 466.309(a), Government Code, is amended to read as follows:

(a) A person commits an offense if the person intentionally or knowingly tampers with, damages, defaces, or renders inoperable any vending machine, electronic computer terminal, video lottery terminal or other video lottery equipment, or other mechanical device used in a lottery game.

SECTION 24. The heading to Section 466.317, Government Code, is amended to read as follows:

Sec. 466.317. PROHIBITION AGAINST SALE OF CERTAIN LOTTERY TICKETS OR OPERATION OF CERTAIN VIDEO LOTTERY SYSTEMS.

SECTION 25. Section 466.317, Government Code, is amended by adding Subsection (a-1) and amending Subsection (c) to read as follows:

(a-1) A person may not control or operate a video lottery system in this state except as provided by this chapter or other law.

(c) A person commits an offense if the person violates this section. An offense under this section is a felony of the third degree [Class A misdemeanor].

SECTION 26. Section 466.355(a), Government Code, is amended to read as follows:

(a) The state lottery account is a special account in the general revenue fund. The account consists of all revenue received from the sale of tickets, license and application fees under this chapter, other than Subchapter K, and all money credited to the account from any other fund or source under law. Interest earned by the state lottery account shall be deposited in the unobligated portion of the general revenue fund.

SECTION 27. Subchapter H, Chapter 466, Government Code, is amended by adding Section 466.360 to read as follows:

Sec. 466.360. VIDEO LOTTERY TERMINAL REVENUE. Revenue generated from the operation of video lottery terminals is governed by Subchapter K and commission rules.

SECTION 28. Section 466.402, Government Code, is amended by adding Subsection (e) to read as follows:

(e) This section does not apply to the payment of prizes for video lottery games governed by Subchapter K.

SECTION 29. Chapter 466, Government Code, is amended by adding Subchapter K to read as follows:

SUBCHAPTER K. VIDEO LOTTERY

Sec. 466.501. LEGISLATIVE FINDINGS AND DECLARATIONS. The legislature finds and declares the following:

(1) The purpose and intent of this subchapter is to carry out the intent of the voters as established by the approval of Section 47a, Article III, Texas Constitution, to expand the revenue-generating ability of the state lottery by authorizing this state to operate a video lottery system consistent with public policy strictly limiting the expansion of gambling in this state.

(2) Except as expressly authorized under other law, the people of this state intend to allow only state-regulated video lottery games to be conducted in this state and only in locations at which pari-mutuel wagering is conducted at racetracks.

(3) The video lottery games operated at racetracks under this subchapter are regulated by this state in a manner that allows this state to continuously monitor all video lottery terminals and to disable any video lottery terminal for the protection of the public and this state.

(4) Through the video lottery system this state will monitor the network of video lottery terminals to ensure maximum security unique to state-regulated gambling. Except as may otherwise be provided by state or federal law governing gaming on Indian lands, each operating video lottery terminal in this state will be connected to a video lottery central system.

(5) Limited gaming is intended to enhance live horse and greyhound racing, horse shows and events, horse and greyhound breeding programs, entertainment, and employment in tourism and agricultural industries of Texas and to assist this state's horse and greyhound racing industry, support programs intended to foster and promote horse and greyhound breeding, and improve the living and working conditions of personnel who work and reside in and around the stable and backside areas of racetracks.

(6) In authorizing only a state-regulated and state-operated video lottery central system and state-regulated video lottery terminals in limited locations and continuing the general prohibition on gambling in this state as a matter of public policy, this state is protecting the state's legitimate interests by restricting such activity. By limiting the operation of video lottery terminals to those connected to the state-regulated video lottery system on certain land with certain types of games, the legislature seeks to foster this state's legitimate sovereign interest in regulating the growth of gambling activities in this state.

(7) This subchapter is game-specific and may not be construed to allow the operation of any other form of gambling unless specifically allowed by this subchapter. This subchapter does not allow the operation of dice games, roulette wheels, house-banked games, including house-banked card games, or games in which winners are determined by the outcome of a live sports contest that are expressly prohibited under other state law.

Sec. 466.502. CONSTRUCTION; APPLICABILITY OF OTHER LAWS. (a) This subchapter applies uniformly throughout this state and all political subdivisions of this state.

(b) To the extent of any inconsistency between this subchapter and the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes), the Alcoholic Beverage Code, or other law, this subchapter controls.

(c) To the extent of any inconsistency between Chapter 2003 and this subchapter or a commission rule governing video lottery terminals, this subchapter or the commission rule controls in all matters related to video lottery terminals.

(d) Video lottery equipment operated under commission authority and this subchapter is exempt from 15 U.S.C. Section 1172.

Sec. 466.503. CONDUCT RELATED TO OPERATION OF VIDEO LOTTERY TERMINALS BY INDIAN TRIBES. Notwithstanding any provision of this chapter, conduct authorized in connection with video lottery terminals under this subchapter, including conduct in which a person who holds a license, certificate of registration, finding of suitability, or other affirmative regulatory approval under this subchapter is authorized to engage under the license, certificate of registration, finding of suitability, or other affirmative regulatory approval, is also authorized for the conduct of video lottery terminals by Indian tribes that is allowed under other law.

[Section 466.504 reserved for expansion]

Sec. 466.505. AUTHORITY TO OPERATE VIDEO LOTTERY SYSTEM. The commission may implement and operate a video lottery system and regulate the operation of video lottery terminals at racetracks in accordance with this subchapter and the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).

Sec. 466.506. VIDEO LOTTERY GAMES; STATE OWNERSHIP AND PROPRIETARY INTEREST. For purposes of this subchapter, this state may acquire a proprietary interest in video lottery game software through:

(1) ownership of the software; or

(2) an exclusive product license agreement with a provider in which the provider retains copyrighted ownership of the software but the license granted to this state is nontransferable and authorizes this state to operate the software program, solely for the state's own use, on the video lottery central system and video lottery terminals connected to the video lottery central system.

Sec. 466.507. STATE CONTROL OF VIDEO LOTTERY SYSTEM. (a) In accordance with Section 47a, Article III, Texas Constitution, the commission shall control and regulate the video lottery system and the video lottery central system through which this state has the exclusive and unilateral ability to monitor activity of video lottery terminals and remotely disable video lottery terminals for the public safety, health, and welfare or the preservation of the integrity of the lottery and to prevent any financial loss to this state.

(b) This section does not affect or restrict the ability of a video lottery manager or video lottery retailer to monitor activity of video lottery terminals and to disable video lottery terminals in accordance with commission rules.

(c) The commission may disable a video lottery terminal if a video lottery retailer's or video lottery manager's license is revoked, surrendered, or summarily suspended under this subchapter and to prevent any financial loss to this state.

[Sections 466.508-466.509 reserved for expansion]

Sec. 466.510. VIDEO LOTTERY CENTRAL SYSTEM. (a) The commission shall establish or cause to be established a video lottery central system to link all video lottery terminals in the video lottery system. The video lottery central system must provide the auditing, security, and other information required by the commission.

(b) The commission shall provide to a registered or approved video lottery terminal provider or an applicant applying for registration or approval as a video lottery terminal provider the protocol documentation data necessary to enable the provider's or applicant's video lottery terminals to communicate with the commission's video lottery central system for transmission of auditing program information and for activation and disabling of video lottery terminals.

(c) The video lottery central system design may not limit or preclude potential providers from providing state-of-the-art, industry-standard video lottery terminals and associated equipment such as player tracking systems, accounting systems, progressive systems, and bonusing systems, except for providers that fail to meet registration or approval specifications established by the commission.

(d) The commission may contract with a video lottery central system provider to establish the video lottery central system.

Sec. 466.511. VIDEO LOTTERY TERMINAL PROVIDER: REGISTRATION OR APPROVAL REQUIRED. (a) A person may not manufacture or distribute video lottery equipment for use or play in this state unless the person is registered as a video lottery terminal provider or is otherwise approved by the commission to manufacture or distribute video lottery equipment in this state. A video lottery retailer may also hold a license as a video lottery terminal provider under this section.

(b) Unless suspended or revoked, the registration or approval expires on the date specified by the commission, which may not be later than the 10th anniversary of the date of the registration or approval. A person may renew an unexpired registration or approval by paying the required renewal fee and complying with the requirements of this subchapter and commission rule.

(c) To be eligible for registration or approval as required by this section, an applicant must satisfy all applicable requirements under this subchapter.

Sec. 466.512. VIDEO LOTTERY TERMINAL PROVIDER: APPLICATION; CHANGE IN INFORMATION. (a) The commission shall adopt rules governing the registration or approval of video lottery terminal providers and the information an applicant must provide to the commission. The rules must require the application and any other form or document submitted to the commission by or on behalf of the applicant to determine the applicant's qualification under this section to be sworn to or affirmed before an officer qualified to administer oaths.

(b) The applicant must demonstrate the ability to comply with all manufacturing, quality control, and operational restrictions imposed on authorized video lottery equipment, patented or otherwise restricted video lottery games, or other video lottery equipment that the applicant seeks to manufacture or distribute for use in this state. The registration or approval process must include an on-site review of the applicant's manufacturing equipment and process for each separate type of authorized video lottery equipment to ensure compliance with the requirements of this chapter and commission rules.

(c) Not later than the 30th day after the date of any change in the information submitted on or with the application form, the applicant shall notify the commission of the change, including a change that occurs after the registration or other approval has been granted.

(d) The applicant shall comply with all federal and state laws, local ordinances, and rules.

Sec. 466.513. VIDEO LOTTERY TERMINAL PROVIDER: APPLICATION FEE. (a) An applicant seeking registration or approval or renewal of registration or approval as a video lottery terminal provider must pay a nonrefundable application fee in the amount prescribed by commission rule that is sufficient to pay the costs to the commission of administering and approving video lottery terminals.

(b) Application fees paid under this section shall be retained by the commission and may be used only to defray costs incurred in the administration and enforcement of this chapter relating to the operation of video lottery terminals.

[Sections 466.514-466.519 reserved for expansion]

Sec. 466.520. VIDEO LOTTERY RETAILER OR VIDEO LOTTERY MANAGER LICENSE REQUIRED. Except as specifically provided by other law, a person may not own or operate a video lottery terminal if the person does not satisfy the requirements of this subchapter and is not licensed by the commission to act as a video lottery retailer or video lottery manager.

Sec. 466.521. VIDEO LOTTERY RETAILER OR VIDEO LOTTERY MANAGER: APPLICATION AND QUALIFICATION. (a) An applicant for a video lottery retailer or video lottery manager license must:

(1) hold a valid racetrack or pari-mutuel license originally granted by the Texas Racing Commission under the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes) on or before January 1, 2011, and the location for the video lottery terminal establishment must be in the county in which the license holder's racetrack was authorized to operate under that license;

(2) have a valid and executed contract with a racetrack or pari-mutuel license holder who satisfies the requirements of Subdivision (1) to act as a video lottery manager for the racetrack subject to licensing under this subchapter; or

(3) demonstrate to the commission's satisfaction that the applicant seeks to act as a video lottery manager for a federally recognized Indian tribe.

(b) Each officer, partner, director, key employee, substantial interest holder, video lottery game operation employee, and owner of video lottery game operations must be eligible and maintain eligibility in accordance with this subchapter to be involved in video lottery games in this state.

(c) The commission shall issue a video lottery retailer or manager license to an applicant who meets the criteria established by the commission rules.

(d) The commission shall adopt rules to implement this section.

Sec. 466.522. VIDEO LOTTERY RETAILER OR VIDEO LOTTERY MANAGER: APPLICATION FEE. (a) An applicant for a video lottery retailer or video lottery manager license shall submit a nonrefundable application processing fee in the amount prescribed by commission rule that is sufficient and reasonable to pay the costs of determining the applicant's eligibility, not to exceed $5,000.

(b) An application may not be processed until the applicant pays the application fee. If the application fee is not received by the 30th day after the date the commission notifies the applicant of the amount of the fee, the application is considered withdrawn and may not be considered by the commission.

[Sections 466.523-466.524 reserved for expansion]

Sec. 466.525. VIDEO LOTTERY TERMINAL ESTABLISHMENT LICENSE: REQUIREMENTS; LOCATION. (a) An applicant for a video lottery terminal establishment license must ensure that the facility for the establishment will comply with all applicable building codes and rules of the commission. The rules adopted by the commission relating to facilities for video lottery establishments must relate solely to this state's interest in the operation of video lottery terminals.

(b) A video lottery terminal establishment shall provide office space for the commission sufficient for at least one commission employee.

(c) An applicant for a video lottery terminal establishment license or a license holder shall provide the information required by commission rule relating to the applicant's or license holder's video lottery terminal establishment and update the information at least annually.

(d) Notwithstanding Section 466.155, the commission may not deny, suspend, or revoke a license under this subchapter based on the fact that a video lottery terminal establishment or a proposed video lottery terminal establishment is a location for which a person holds a wine and beer retailer's permit, mixed beverage permit, mixed beverage late hours permit, private club registration permit, or private club late hours permit, issued under Chapter 25, 28, 29, 32, or 33, Alcoholic Beverage Code.

(e) A video lottery terminal establishment may be located only at the premises of a racetrack.

(f) Notwithstanding Subsections (a) and (b) and on request of an applicant for a video lottery terminal establishment license, the commission by rule shall authorize the applicant, on receipt of a license issued under this chapter to operate a video lottery terminal establishment at a racetrack that meets the requirements of Section 466.555, to construct temporary facilities to house and operate video lottery equipment for not more than two years. A racetrack that is granted a waiver described by Section 466.555(h) is considered to meet the requirements of Section 466.555 for purposes of this subsection.

Sec. 466.526. LICENSE HOLDER AS SALES AGENT. The holder of a video lottery retailer or video lottery manager license may operate as a sales agent for lottery tickets in accordance with this chapter.

Sec. 466.527. TERM; RENEWAL ELIGIBILITY. (a) Unless suspended or revoked, a license, certificate of registration, finding of suitability, or other affirmative regulatory approval issued under this subchapter, other than a video lottery retailer license, expires on the date specified in the license, certificate, finding, or approval, which may not be later than the 10th anniversary of the date of issuance.

(b) A video lottery retailer license is valid for the same term as the retailer's racetrack or pari-mutuel license issued under the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes) unless suspended or revoked. The commission may charge an annual fee not to exceed $50,000 to the holder of a video lottery retailer license.

(c) To be eligible for renewal of a license, certificate of registration, finding of suitability, or other affirmative regulatory approval, an applicant must satisfy all applicable requirements under this subchapter.

Sec. 466.528. RULES FOR ADDITIONAL QUALIFICATIONS. The commission by rule may establish other license, certificate, finding of suitability, or approval qualifications the commission determines are in the public interest and consistent with the declared policy of this state.

Sec. 466.529. APPLICATION AS REQUEST FOR CHARACTER DETERMINATION. An application under this subchapter to receive or renew a license, certificate of registration, finding of suitability, or other affirmative regulatory approval constitutes a request for a determination of the applicant's general character, integrity, and ability to participate or engage in or be associated with the operation of video lottery terminals.

Sec. 466.530. IMMUNITY FOR STATEMENT MADE IN PROCEEDING OR INVESTIGATION. Any written or oral statement made in the course of an official commission proceeding or investigative activities related to an application for commission licensing, registration, suitability determination, or other affirmative regulatory approval under this subchapter, by any member or agent or any witness testifying under oath, that is relevant to the purpose of the proceeding is absolutely privileged and does not impose liability for defamation or constitute a ground for recovery in any civil action.

Sec. 466.531. SUITABILITY FINDING. To promote the integrity and security of the video lottery system, the commission in its discretion may require a suitability finding for any person doing business with or in relation to the operation of video lottery terminals who is not otherwise required to obtain a license, registration, or approval from the commission for the person's video lottery-related operations.

Sec. 466.532. SUMMARY SUSPENSION OF VIDEO LOTTERY RETAILER OR VIDEO LOTTERY MANAGER LICENSE; TERMINAL DISABLED. (a) The commission may summarily suspend the license of a video lottery retailer or video lottery manager without notice or hearing if the commission finds the action is necessary to maintain the integrity, security, honesty, or fairness of the operation or administration of the lottery or to prevent financial loss to this state and:

(1) the license holder fails to deposit money received from video lottery terminal operations as required by this subchapter or commission rule;

(2) an event occurs that would render the license holder ineligible for a license under this subchapter;

(3) the license holder refuses to allow the commission, the commission's agents, or the state auditor, or their designees, to examine the license holder's books, records, papers, or other objects under Section 466.017; or

(4) the executive director learns the license holder failed to disclose information that would, if disclosed, render the video lottery retailer or video lottery manager ineligible for a license under this subchapter.

(b) A summary suspension under this section must comply with the notice and procedure requirements provided by Section 466.160.

(c) The commission may disable a video lottery terminal operated by a license holder under this subchapter at the time:

(1) a proceeding to summarily suspend the license is initiated;

(2) the commission discovers the license holder failed to deposit money received from video lottery terminal operations as required if the license is being summarily suspended under this section; or

(3) an act or omission occurs that, under commission rules, justifies the termination of video lottery terminal operations to:

(A) protect the integrity of the lottery or the public health, welfare, or safety; or

(B) prevent financial loss to this state.

(d) The commission shall immediately disable a video lottery terminal if necessary to protect the public health, welfare, or safety.

Sec. 466.533. LICENSING, REGISTRATION, SUITABILITY, AND REGULATORY APPROVAL AS REVOCABLE PERSONAL PRIVILEGES. (a) The purchaser or successor of a person who holds a license, registration, finding of suitability, or other affirmative regulatory approval under this subchapter must independently qualify for a license, registration, suitability, or approval required by this subchapter.

(b) The following acts void the license, registration, finding of suitability, or other affirmative regulatory approval of the holder unless approved in advance by the commission:

(1) the transfer, sale, or other disposition of an interest in the holder that results in a change in the identity of a substantial interest holder; or

(2) the sale of the assets of the holder, other than assets bought and sold in the ordinary course of business, or any interest in the assets, to any person not already determined to have met the applicable qualifications of this subchapter.

[Sections 466.534-466.535 reserved for expansion]

Sec. 466.536. VIDEO LOTTERY TERMINAL. The commission shall provide all video lottery retailers or video lottery managers with a list of registered video lottery terminal providers, video lottery games, and video lottery terminals authorized for operation under this subchapter.

Sec. 466.537. VIDEO LOTTERY TERMINAL: DISTRIBUTION AND COMMISSION APPROVAL. (a) A video lottery terminal provider may not distribute a video lottery terminal or other video lottery equipment for placement at a video lottery terminal establishment in this state unless the video lottery terminal or other video lottery equipment has been approved by the commission.

(b) Only a video lottery terminal provider registered with or approved by the commission may apply for approval of a video lottery terminal or other video lottery equipment.

(c) Not later than the 10th day before the date of shipment to a location in this state, a video lottery terminal provider shall file a report with the commission itemizing all video lottery terminals and other video lottery equipment to be provided to a video lottery retailer or video lottery manager in the shipment.

Sec. 466.538. VIDEO LOTTERY TERMINAL: TESTING; REPORT. (a) A video lottery terminal provider shall submit two copies of terminal illustrations, schematics, block diagrams, circuit analysis, technical and operation manuals, and any other information requested by the commission for the purpose of analyzing and testing the video lottery terminal or other video lottery equipment.

(b) The commission may require a working model of a video lottery terminal to be provided to the commission unless the video lottery terminal provider provides a certification from an independent, commission-approved testing laboratory that the video lottery terminal is compatible with the state's video lottery system and functions as required by the commission.

Sec. 466.539. VIDEO LOTTERY TERMINAL: INSTALLATION; MODIFICATION REQUEST. (a) A video lottery terminal provider is responsible for the assembly and installation of all video lottery terminals and related video lottery equipment.

(b) A video lottery terminal provider, video lottery retailer, or video lottery manager may not change the assembly or operational functions of a video lottery terminal authorized by the commission for placement in this state unless a request for modification of an existing video lottery terminal prototype is approved by the commission. The request must contain:

(1) a detailed description of the type of change;

(2) a detailed description of the reasons for the change; and

(3) technical documentation of the change.

(c) A video lottery terminal approved by the commission for placement at a video lottery terminal establishment must conform to the specifications of the video lottery terminal prototype tested or approved by the commission.

Sec. 466.540. VIDEO LOTTERY TERMINAL REMOVAL. (a) If any video lottery terminal that has not been approved by the commission is distributed by a video lottery terminal provider or operated by a video lottery retailer or video lottery manager or if an approved video lottery terminal malfunctions, the commission shall require the terminal to be removed from use and play.

(b) The commission may order that an unapproved terminal be seized and destroyed.

(c) The commission may suspend or revoke the license of a video lottery retailer or video lottery manager or the registration or approval of a video lottery terminal provider for the distribution, possession, or operation of an unauthorized video lottery terminal.

(d) A video lottery retailer or video lottery manager may retain on the premises of a video lottery establishment a number of machines that the retailer or manager determines is necessary for spare parts or repair purposes or as replacements. The retailer or manager must provide to the commission each month a list of the terminals retained under this subsection.

Sec. 466.541. VIDEO LOTTERY TERMINAL SPECIFICATIONS. (a) The commission shall adopt rules for approval of video lottery terminals, including requirements for video lottery game tickets, maximum and minimum payout, and maximum wagers.

(b) A commission-approved video lottery terminal must meet the following minimum specifications:

(1) the terminal must:

(A) operate through a player's insertion of a coin, currency, voucher, or token into the video lottery terminal that causes the video lottery terminal to display credits that entitle the player to select one or more symbols or numbers or cause the video lottery terminal to randomly select symbols or numbers;

(B) allow the player to win additional game play credits, coins, or tokens based on game rules that establish the random selection of winning combinations of symbols or numbers and the number of free play credits, coins, or tokens to be awarded for each winning combination; and

(C) allow the player at any time to clear all game play credits and receive a video lottery ticket or other representation of credits entitling the player to receive the cash value of those credits;

(2) a surge protector must be installed on the electrical power supply line to each video lottery terminal, a battery or equivalent power backup for the electronic meters must be capable of maintaining the accuracy of all accounting records and video lottery terminal status reports for a period of 180 days after power is disconnected from the video lottery terminal, and the power backup device must be in the compartment specified in Subdivision (4);

(3) the operation of each video lottery terminal may not be adversely affected by any static discharge or other electromagnetic interference;

(4) the main logic boards of all electronic storage mediums must be located in a separate compartment in or from the video lottery terminal that is locked and sealed by the commission;

(5) the instructions for play of each game must be displayed on the video lottery terminal face or screen, including a display detailing the credits awarded for the occurrence of each possible winning combination of numbers or symbols;

(6) communication equipment and devices must be installed to enable each video lottery terminal to communicate with the video lottery central system through the use of a communications protocol provided by the commission to each registered video lottery terminal provider, which must include information retrieval and programs to activate and disable the terminal; and

(7) a video lottery terminal may be operated only if connected to the video lottery central system, and play on the terminal may not be conducted unless the terminal is connected to the video lottery central system.

Sec. 466.542. VIDEO LOTTERY TERMINALS: HOURS OF OPERATION; COMMUNICATION; LOCATION. (a) Except as otherwise provided by the commission, the hours of operation for video lottery terminals are subject to restrictions only as provided by commission rules.

(b) The commission by rule may prescribe restrictions on the hours of video lottery terminal operations for purposes of accounting for and collecting revenue generated by video lottery terminal operations and performing other operational services on the video lottery system.

(c) Communication between the video lottery central system and each video lottery terminal must be continuous and on a real-time basis as prescribed by the commission.

(d) Except as provided by commission rule, placement or movement of video lottery terminals in a video lottery terminal establishment must be consistent with a video lottery terminal establishment floor plan filed with the commission.

Sec. 466.543. VIDEO LOTTERY TERMINAL: TRANSPORT; DISPOSITION OF OBSOLETE TERMINAL. (a) The transportation and movement of video lottery terminals into or within this state is prohibited, except as permitted by this subchapter and approved by the commission.

(b) An obsolete video lottery terminal or a video lottery terminal that is no longer in operation must be promptly reported to the commission.

[Section 466.544 reserved for expansion]

Sec. 466.545. TRAVEL AND INVESTIGATION COSTS. The commission shall pay the travel and investigative expenses incurred under this subchapter from money appropriated to the commission.

Sec. 466.546. CONSENT TO COMMISSION DETERMINATION. (a) An application for a license, certificate of registration, finding of suitability, or other affirmative regulatory approval under this subchapter constitutes a request to the commission for a decision on the applicant's general suitability, character, integrity, and ability to participate or engage in or be associated with the lottery in the manner or position sought.

(b) By filing an application with the commission, the applicant specifically consents to the commission's decision at the commission's election when the application, after filing, becomes moot for any reason other than death.

Sec. 466.547. ABSOLUTE AUTHORITY OF COMMISSION. To protect the integrity of the lottery or the public health, welfare, or safety, or to prevent financial loss to this state, the commission has full and absolute power and authority, subject to Chapter 2001, to:

(1) deny any application or limit, condition, restrict, revoke, or suspend any license, registration, finding of suitability, or other affirmative regulatory approval; and

(2) fine any person licensed, registered, found suitable, or approved for cause.

Sec. 466.548. INSTITUTIONAL INVESTOR. The commission shall adopt rules regarding a finding of suitability for an institutional investor in a person licensed under this subchapter.

[Sections 466.549-466.550 reserved for expansion]

Sec. 466.551. EFFECT OF DENIAL OF LICENSE, REGISTRATION, FINDING OF SUITABILITY, OR APPROVAL. (a) A person whose application for a license, registration, finding of suitability, or other affirmative regulatory approval has been denied may not have any interest in or association with a video lottery retailer or video lottery manager or any other business conducted in connection with video lottery without prior approval of the commission.

(b) Any contract between a person holding a license, certificate of registration, finding of suitability, or other affirmative regulatory approval and a person denied a license, certificate of registration, finding of suitability, or other affirmative regulatory approval must be terminated immediately on receipt of notice from the commission. If the person denied a license, certificate of registration, finding of suitability, or other affirmative regulatory approval has previously been granted a temporary license, certificate of registration, finding of suitability, or other affirmative regulatory approval, the temporary license, certificate of registration, finding of suitability, or other affirmative regulatory approval expires immediately on denial of the permanent license, certificate of registration, finding of suitability, or other affirmative regulatory approval.

(c) Except as otherwise authorized by the commission, a person denied a license, certificate of registration, finding of suitability, or other affirmative regulatory approval may not reapply for any license, certificate of registration, finding of suitability, or other affirmative regulatory approval before the second anniversary of the date of the denial.

[Section 466.552 reserved for expansion]

Sec. 466.553. PRACTICE BY VIDEO LOTTERY RETAILER OR VIDEO LOTTERY MANAGER. A video lottery retailer or video lottery manager must:

(1) be aware of patron conditions and prohibit play by visibly intoxicated patrons;

(2) comply with state alcoholic beverage control laws;

(3) at all times maintain sufficient change and cash in denominations accepted by video lottery terminals;

(4) promptly report all video lottery terminal malfunctions and downtime;

(5) install, post, and display prominently any material required by the commission;

(6) prohibit illegal gambling and any related paraphernalia;

(7) except as otherwise provided by this subchapter, at all times prohibit money lending or other extensions of credit at the video lottery terminal establishment;

(8) supervise employees and activities to ensure compliance with all commission rules and this subchapter;

(9) maintain continuous camera coverage of all aspects of video lottery game operations, including video lottery terminals; and

(10) maintain an entry log for each video lottery terminal on the premises of the video lottery terminal establishment and maintain and submit complete records on receipt of each video lottery terminal on the premises as determined by the commission.

Sec. 466.554. RACETRACK REQUIREMENTS. (a) A video lottery retailer at all times must hold a valid racetrack or pari-mutuel wagering license issued by the Texas Racing Commission.

(b) A video lottery retailer that meets the qualifications of Section 466.521(a)(1) is considered to meet the requirements of this section.

Sec. 466.555. LIVE RACING REQUIREMENT. (a) "Class 1 racetrack," "class 2 racetrack," and "class 3 racetrack" have the meanings assigned by Section 6.02, Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).

(b) Except as provided by Subsection (d), a class 1 racetrack that operates a video lottery terminal establishment:

(1) shall annually offer for pari-mutuel wagering on quarter horse and Thoroughbred races at that racetrack not fewer than the greater of:

(A) the number of live racing days conducted by the racetrack for each breed in 2002; or

(B) 50 live race days or 500 live races for each breed; and

(2) may not conduct live racing on any day on which another horse racetrack located within a 100-mile radius of the racetrack conducts live racing for the same breed.

(c) Except as provided by Subsection (d), a class 2 racetrack that operates a video lottery terminal establishment:

(1) shall annually offer for pari-mutuel wagering on quarter horse and Thoroughbred races at that racetrack not fewer than the greater of:

(A) the number of live racing days conducted by the racetrack for each breed in 2002; or

(B) 25 live race days or 250 live races for each breed; and

(2) may not conduct live racing on any day on which another horse racetrack within a 100-mile radius of the racetrack conducts live racing for the same breed.

(d) A class 1 or class 2 racetrack may conduct fewer live racing days or live races than required by Subsection (b) or (c) for any breed if the racetrack, the applicable officially recognized breed registry, and the officially recognized horsemen's organization for that breed enter into a written agreement to conduct fewer racing days or live races.

(e) A class 2 or class 3 racetrack that operates a video lottery terminal establishment and that is located within a 100-mile radius of a class 1 racetrack may not conduct a horse race in a manner that, for any breed, would result in:

(1) an average daily purse amount that exceeds the average daily purse amount at the immediately preceding race meeting for that breed at the class 1 racetrack unless otherwise agreed to by both racetracks; or

(2) total purse amounts for that race meeting that exceed the total purse amounts for the immediately preceding race meeting for that breed at the class 1 racetrack unless otherwise agreed to by both racetracks.

(f) A class 2 or class 3 racetrack subject to Subsection (e) shall transfer any purse money in the Texas equine development fund for that racetrack in excess of the maximum purse amounts authorized under Subsection (e) to the horsemen's organization for the same breed at the class 1 racetrack within the specified radius for use by the organization, unless the class 1 racetrack and the horsemen's organization agree to allow some or all of the excess purse money to be transferred and used for the same breed by the horsemen's organization at another racetrack or racetracks.

(g) A greyhound racetrack that operates a video lottery terminal establishment shall offer not fewer than 420 live greyhound racing performances in each calendar year, unless otherwise agreed to in writing by the racetrack and the officially recognized greyhound breed registry. For purposes of this subsection, "greyhound racing performance" means the consecutive running of not fewer than 12 greyhound races.

(h) The Texas Racing Commission shall adopt rules to implement this section, including rules governing waiver of the requirements of this section due to fire, weather, absence of existing facilities required to conduct pari-mutuel wagering on live racing, or other events beyond the reasonable control of the pari-mutuel license holder. A waiver granted under this subsection for construction of a new racetrack facility:

(1) expires on the second anniversary of the date of issuance; and

(2) must include a provision that addresses the transfer of a portion of the revenue generated from the operation of the video lottery terminals as provided under this chapter to the applicable Texas equine development fund or Texas canine development fund during the term of the waiver.

(i) If a racetrack is in violation of this section and is denied a waiver of the requirements of this section by the Texas Racing Commission, the racing commission shall:

(1) require that, beginning on the date the request for the waiver is denied, the racetrack's share of net terminal income be placed in an escrow account and remain in that account until the racing commission approves its release; and

(2) provide for the timely release of money from the escrow account for required payments of debt instruments, license fees, and other ordinary operating expenses.

(j) The Texas Racing Commission may not approve the release of the remainder of the money in the escrow account after the payments authorized under Subsection (i)(2) until the racing commission certifies that, in the racing commission's judgment, the racetrack has taken the actions required by the racing commission to correct violations of this section. If the racing commission makes the certification before live racing resumes at the racetrack, it shall grant a waiver of the requirements of this section. The actions required by the racing commission to correct violations of this section must be a condition of the waiver and must include a period for completion of the specified actions. If the racetrack fails to adhere to the conditions of the waiver, the waiver is revoked.

(k) A racetrack is ineligible to hold a video lottery terminal establishment license under this subchapter if:

(1) the Texas Racing Commission denies a waiver of the requirements of this section;

(2) the denial is not reversed after all appeals of that decision by that racetrack are final; and

(3) the racetrack fails to take the actions required by the racing commission to correct violations of this section.

Sec. 466.556. PRIZE RULES. The commission shall adopt rules governing:

(1) the range of amounts a player may be charged to play each video lottery game; and

(2) the range of prizes and credits that may be awarded to the player of a video lottery game.

Sec. 466.557. VIDEO LOTTERY CENTRAL SYSTEM: COMMUNICATION TECHNOLOGY. The video lottery central system provider shall pay for the installation and operation of commission-approved communication technology to provide communication between each video lottery terminal and the video lottery central system.

Sec. 466.558. RESPONSIBILITY FOR VIDEO LOTTERY GAME OPERATIONS. (a) A video lottery retailer or a video lottery manager, if applicable, is responsible for the management of video lottery game operations, including:

(1) the validation and payment of prizes, determination of game themes, prizes, bonuses, progressives, number and placement of video lottery terminals, and individual pay out percentage settings; and

(2) the management of cashiers, food and beverage workers, floor workers, security personnel, the security system, building completion, janitorial services, landscaping design, and maintenance.

(b) Nothing in Subsection (a) limits the authority of the commission, the Department of Public Safety, or another law enforcement agency to administer and enforce this chapter as related to video lottery.

(c) In addition to other requirements under this chapter relating to video lottery, a video lottery retailer or a video lottery manager at all times shall:

(1) operate only video lottery terminals that are distributed by a registered or approved video lottery terminal provider and provide a secure location for the placement, operation, and play of the video lottery terminals;

(2) prevent any person from tampering with or interfering with the operation of a video lottery terminal;

(3) ensure that communication technology from the video lottery central system to the video lottery terminals is connected at all times and prevent any person from tampering or interfering with the operation of the connection;

(4) ensure that video lottery terminals are in the sight and control of designated employees of the video lottery retailer or video lottery manager and in the sight of video cameras as required under this subchapter;

(5) ensure that video lottery terminals are placed and remain placed in the locations in the video lottery terminal establishment that are consistent with the retailer's or manager's floor plan;

(6) monitor video lottery terminals to prevent access to or play by persons who are under 21 years of age or who are visibly intoxicated;

(7) pay all credits won by a player on presentment of a valid winning video lottery game ticket;

(8) install, post, and display prominently at the licensed location redemption information and other informational or promotional materials as required by the commission;

(9) maintain general liability insurance coverage for the video lottery terminal establishment and all video lottery terminals in the amounts required by the commission;

(10) assume liability for money lost or stolen from any video lottery terminal; and

(11) annually submit an audited financial statement to the commission in accordance with generally accepted accounting principles.

[Section 466.559 reserved for expansion]

Sec. 466.560. TECHNICAL STANDARDS FOR VIDEO LOTTERY EQUIPMENT. The commission by rule shall establish minimum technical standards for video lottery equipment that may be operated in this state.

Sec. 466.561. INCIDENT REPORTS. (a) A video lottery retailer or video lottery manager shall record all unusual occurrences related to gaming activity in a video lottery terminal establishment operated by the retailer or manager.

(b) A video lottery retailer or video lottery manager shall assign each material incident, without regard to materiality, a sequential number and, at a minimum, provide the following information in a permanent record prepared in accordance with commission rules to ensure the integrity of the record:

(1) the number assigned to the incident;

(2) the date and time of the incident;

(3) the nature of the incident;

(4) each person involved in the incident; and

(5) the name of the employee or other agent of the video lottery retailer or video lottery manager who investigated the incident.

Sec. 466.562. EXCLUSION OF PERSONS. (a) The commission shall compile a list of persons that a video lottery retailer or video lottery manager must bar from a video lottery terminal establishment based on a person's criminal history or association with criminal offenders or because the person poses a threat to the integrity of the lottery.

(b) A video lottery retailer or video lottery manager shall employ the retailer's or manager's best efforts to exclude such persons from entry into the establishment.

(c) A video lottery retailer or video lottery manager may exclude a person for any reason not related to the person's race, sex, national origin, physical disability, or religion.

(d) A person who believes the person may be playing video lottery games on a compulsive basis may request that the person's name be placed on the list compiled by the commission under Subsection (a).

(e) All video lottery game employees shall receive training in identifying players with a compulsive playing problem. Signs and other materials shall be readily available to direct compulsive players to agencies that offer appropriate counseling.

Sec. 466.563. REPORT ON LITIGATION. (a) A video lottery retailer or video lottery manager shall report to the commission any litigation relating to the retailer's or manager's video lottery terminal establishment, including a criminal proceeding, a proceeding involving an issue related to racing activities that impact video lottery operations, or a matter related to character or reputation relevant to a person's suitability under this subchapter.

(b) The report required under Subsection (a) must be filed not later than the fifth day after the date the video lottery retailer or video lottery manager acquired knowledge of the litigation.

Sec. 466.564. COMMISSION APPROVAL REQUIRED FOR PROCEDURES AND ACCOUNTING CONTROLS. (a) The commission's approval is required for all internal procedures and accounting controls of a video lottery retailer or video lottery manager.

(b) The commission by rule shall establish general accounting and auditing requirements and internal control standards for video lottery retailers and video lottery managers.

[Section 466.565 reserved for expansion]

Sec. 466.566. VIDEO LOTTERY TERMINAL EVENTS. A video lottery retailer or video lottery manager shall keep a record of video lottery terminal events. The commission by rule shall determine what constitutes a video lottery terminal event for purposes of this section.

Sec. 466.567. EMPLOYEE REPORTING. (a) On or before the 15th day of each month, a video lottery retailer or video lottery manager shall submit to the commission an employee report for the video lottery terminal establishment operated by the retailer or manager. For each employee of the retailer or manager, the report must provide the employee's name, job title, date of birth, and social security number.

(b) The employee report is confidential and may not be disclosed except under commission order or in accordance with Section 466.022(d).

(c) The commission may conduct criminal history investigations for employees of video lottery retailers and video lottery managers.

(d) The commission may prohibit an employee from performing any act relating to video lottery terminals if the commission finds that an employee has:

(1) committed, attempted, or conspired to commit any act prohibited by this chapter;

(2) concealed or refused to disclose any material fact in any commission investigation;

(3) committed, attempted, or conspired to commit larceny or embezzlement;

(4) been convicted in any jurisdiction of an offense involving or relating to gambling;

(5) accepted employment in a position for which commission approval is required after commission approval was denied for a reason involving personal unsuitability or after failing to apply for a license or approval on commission request;

(6) been prohibited under color of governmental authority from being present on the premises of any gaming establishment or any establishment where pari-mutuel wagering is conducted for any reason relating to improper gambling activity or for any illegal act;

(7) wilfully defied any legislative investigative committee or other officially constituted body acting on behalf of the United States or any state, county, or municipality that sought to investigate alleged or potential crimes relating to gaming, corruption of public officials, or any organized criminal activities; or

(8) been convicted of any felony or any crime involving moral turpitude.

(e) The commission may prohibit an employee from performing any act relating to video lottery terminals based on a revocation or suspension of any gaming or wagering license, certificate of registration, finding of suitability, or other affirmative regulatory approval or for any other reason the commission finds appropriate, including a refusal by a regulatory authority to issue a license, certificate of registration, finding of suitability, or other affirmative regulatory approval for the employee to engage in or be involved with the lottery or with regulated gaming or pari-mutuel wagering in any jurisdiction.

(f) In this section, "employee" includes any person connected directly with or compensated by an applicant or the holder of a license, certificate of registration, finding of suitability, or other affirmative regulatory approval under this subchapter as an agent, personal representative, consultant, or independent contractor for activities directly related to video lottery operations in this state.

Sec. 466.568. REPORT OF VIOLATIONS. A person who holds a license, certificate of registration, finding of suitability, or other affirmative regulatory approval under this subchapter shall immediately report a violation or suspected violation of this chapter or a rule adopted under this chapter by any holder of a license, certificate of registration, finding of suitability, or other affirmative regulatory approval, by an employee of the holder, or by any person on the premises of a video lottery terminal establishment, whether or not associated with the holder.

Sec. 466.569. SECURITY. (a) In addition to the security provisions applicable under Section 466.020, a video lottery retailer or video lottery manager shall comply with the following security procedures:

(1) all video lottery terminals must be continuously monitored through the use of a closed-circuit television system that records activity for a continuous 24-hour period and all video tapes or other media used to store video images shall be retained for at least 30 days and made available to the commission on request;

(2) access to video lottery terminal areas shall be restricted to persons who are at least 21 years of age;

(3) the video lottery retailer or video lottery manager must provide to the commission a security plan for the retailer or manager's video lottery operations that includes a floor plan of the area where video lottery terminals are to be operated showing video lottery terminal locations and security camera mount locations; and

(4) each license holder shall employ at least the minimum number of private security personnel the commission determines is necessary to provide for safe and approved operation of the video lottery terminal establishment and the safety and well-being of the players.

(b) Private security personnel must be present during all hours of operation at each video lottery terminal establishment.

(c) An agent or employee of the commission or the Department of Public Safety or other law enforcement personnel may be present at a video lottery terminal establishment at any time.

(d) The commission may adopt rules to impose additional surveillance and security requirements related to video lottery terminal establishments and the operation of video lottery terminals.

Sec. 466.570. VIDEO LOTTERY TERMINAL ESTABLISHMENT: COMMISSION RIGHT TO ENTER. The commission, the commission's representative, the Texas Racing Commission, or a representative of the Texas Racing Commission, after displaying appropriate identification and credentials, has the free and unrestricted right to enter the premises of a video lottery terminal establishment and to enter any other locations involved in operation or support of video lottery at all times to examine the systems and to inspect and copy the records of a video lottery retailer or video lottery manager pertaining to the operation of video lottery.

[Sections 466.571-466.586 reserved for expansion]

Sec. 466.587. INDEMNIFICATION REQUIREMENTS. The holder of a license, certificate of registration, finding of suitability, or other affirmative regulatory approval shall indemnify and hold harmless this state, the commission, and all officers and employees of this state and the commission from any and all claims which may be asserted against the holder, the commission, this state, and the members, officers, employees, and authorized agents of this state or the commission arising from the holder's participation in the video lottery system authorized under this subchapter.

Sec. 466.588. LIABILITY FOR CREDIT AWARDED OR DENIED; PLAYER DISPUTE. (a) This state and the commission are not liable for any video lottery terminal malfunction or error by a video lottery retailer, video lottery manager, or video lottery terminal provider that causes credit to be wrongfully awarded or denied to players.

(b) Any dispute arising between a player and a video lottery retailer or video lottery manager shall be resolved by the commission as follows:

(1) if the fair market value of the prize is less than $1,000, the dispute shall be resolved in accordance with the commission-approved written policies of the video lottery retailer or video lottery manager and without any relief available from the commission or this state; or

(2) if the fair market value of the prize is $1,000 or more, the dispute shall be resolved by the commission in the commission's sole discretion in accordance with commission rules.

(c) A court of this state does not have jurisdiction to review the decision of the commission resolving a dispute between a player and a video lottery retailer, video lottery manager, or video lottery terminal provider.

Sec. 466.589. STATE VIDEO LOTTERY ACCOUNT. (a) The commission shall deposit funds received under this subchapter to the state video lottery account. The state video lottery account is a special account in the general revenue fund. The account consists of all revenue received by this state from the operation of video lottery terminals.

(a-1) Notwithstanding Section 466.355(b), the commission may expend an amount not to exceed $5 million from the state lottery account to establish the video lottery system in accordance with this chapter and from revenue deposited in the state video lottery account may reimburse the state lottery account for the total amount of funds expended from the state lottery account to establish the video lottery system. This subsection expires January 1, 2015.

(b) An amount not to exceed one percent of the net terminal income received by this state under Section 466.590 shall be allocated to the commission to defray expenses incurred in administering this chapter related to video lottery, including expenses incurred to operate the video lottery central system. All money allocated to the commission under this subsection may be retained by the commission to defray expenses of administering this chapter related to video lottery and shall be deposited in the state video lottery account.

Sec. 466.590. ALLOCATION OF NET TERMINAL INCOME; TRANSFER OF MONEY. (a) Net terminal income derived from the operation of video lottery games in this state is allocated as follows:

(1) a portion of the net terminal income generated in each calendar year shall be remitted to this state by the video lottery retailer or video lottery manager in an amount equal to 30 percent of the net terminal income for that year; and

(2) the remainder shall be retained by the video lottery retailer or video lottery manager.

(b) Ten million dollars of the net terminal income received by this state under Subsection (a) shall annually in equal monthly installments be transferred to the Texas Racing Commission to be expended solely for the treatment of compulsive gamblers and the promotion of responsible gaming.

(c) Ten million dollars of the net terminal income received by this state under Subsection (a) shall annually in equal monthly installments be transferred to the criminal justice planning fund for use by the criminal justice division of the governor's office to be used to prosecute offenses under Chapter 47, Penal Code.

(d) The commission shall require a video lottery retailer or video lottery manager to establish a separate electronic funds transfer account for depositing money from video lottery terminal operations, making payments to the commission or its designee, and receiving payments from the commission or its designee.

(e) A video lottery retailer or video lottery manager may not make payments to the commission in cash. As authorized by the commission, a video lottery retailer or video lottery manager may make payments to the commission by cashier's check.

(f) The commission at least weekly shall transfer this state's share of net terminal income of a video lottery retailer or video lottery manager to the commission through the electronic transfer of the money.

(g) The commission by rule shall establish the procedures for:

(1) depositing money from video lottery terminal operations into electronic funds transfer accounts; and

(2) handling money from video lottery terminal operations.

(h) Unless otherwise directed by the commission, a video lottery retailer or a video lottery manager shall maintain in its account this state's share of the net terminal income from the operation of video lottery terminals, to be electronically transferred by the commission on dates established by the commission. On a license holder's failure to maintain this balance, the commission may disable all of a license holder's video lottery terminals until full payment of all amounts due is made. Interest shall accrue on any unpaid balance at a rate consistent with the amount charged under Section 111.060, Tax Code. The interest shall begin to accrue on the date payment is due to the commission.

(i) In the commission's sole discretion, rather than disable a license holder's video lottery terminals under Subsection (h), the commission may elect to impose a fine on a license holder in an amount determined by the commission not to exceed $250,000 for each violation. If the license holder fails to remedy the violation, including payment of any amounts assessed by or due to this state, on or before the 30th day after the date the license holder is notified of the violation, the commission may disable the license holder's video lottery terminals or use any other means for collection as provided by the penalty chart established by the commission.

(j) A video lottery retailer or video lottery manager is solely responsible for resolving any income discrepancies between actual money collected and the net terminal income reported by the video lottery central system. Unless an accounting discrepancy is resolved in favor of the video lottery retailer or video lottery manager, the commission may not make any credit adjustments. Any accounting discrepancies which cannot otherwise be resolved shall be resolved in favor of the commission.

(k) A video lottery retailer and video lottery manager shall remit payment as directed by the commission if the electronic transfer of money is not operational or the commission notifies the license holder that other remittance is required. The license holder shall report this state's share of net terminal income, and remit the amount generated from the terminals during the reporting period.

Sec. 466.591. COMMISSION EXAMINATION OF FINANCIAL RECORDS. The commission may examine all accounts, bank accounts, financial statements, and records in the possession or control of a person licensed under this subchapter or in which the license holder has an interest. The license holder must authorize and direct all third parties in possession or in control of the accounts or records to allow examination of any of those accounts or records by the commission.

Sec. 466.592. FINANCIAL INFORMATION REQUIRED. (a) A video lottery retailer or video lottery manager shall furnish to the commission all information and bank authorizations required to facilitate the timely transfer of money to the commission.

(b) A video lottery retailer or video lottery manager must provide the commission advance notice of any proposed account changes in information and bank authorizations to assure the uninterrupted electronic transfer of money.

(c) The commission is not responsible for any interruption or delays in the transfer of money. The video lottery retailer or video lottery manager is responsible for any interruption or delay in the transfer of money.

Sec. 466.593. TRANSFERS OF VIDEO LOTTERY PROCEEDS FOR CERTAIN PURPOSES; RACING FACILITIES CAPITAL IMPROVEMENT ACCOUNT. (a) A video lottery retailer or video lottery manager that operates a video lottery terminal establishment at a horse racetrack at least weekly shall transfer:

(1) 11 percent of the net terminal income to the Texas equine development fund established at that racetrack; and

(2) one percent of the net terminal income to the performance horse development fund.

(b) A video lottery retailer or video lottery manager that operates a video lottery terminal establishment at a greyhound racetrack shall transfer 12 percent of the net terminal income to the Texas canine development fund established at that racetrack.

(c) A video lottery retailer or video lottery manager that operates a video lottery terminal establishment at a horse racetrack shall provide at least $1 million, or a different amount required by the Texas Racing Commission, in accident insurance coverage for jockeys participating in a race meeting at its racetrack. The Texas Racing Commission:

(1) may review and approve the adequacy of the coverage;

(2) shall annually adjust for inflation the minimum coverage amount; and

(3) shall annually publish in the Texas Register the revised minimum coverage amount.

(d) A video lottery retailer or video lottery manager shall provide all necessary capital investments and required improvements for the video lottery terminal establishment.

(e) A video lottery retailer or video lottery manager shall make at least weekly payments to the racing facilities capital improvement account in an amount equal to one-half of one percent of the net terminal income unless a racing facilities agreement providing for a different amount is filed with the Texas Racing Commission.

(f) The racing facilities capital improvement account is an escrow account maintained by the Texas Racing Commission. A transfer of money from the account requires:

(1) for a horse racetrack, the signatures of:

(A) a designated official of the horse racetrack; and

(B) a designated representative appointed by a majority of the quarter horse state breed registry, the Thoroughbred state horse breed registry, and the horsemen's organization; or

(2) for a greyhound racetrack, the signatures of:

(A) a designated official of the greyhound racetrack; and

(B) a designated representative of the Texas Greyhound Association.

(g) The Texas Racing Commission shall adopt rules to administer this section. The rules must require the electronic transfer of funds to the accounts described in this section.

(h) A matter considered by the Texas Racing Commission under this section is a contested case under Chapter 2001 and requires a public hearing.

Sec. 466.594. PAYMENTS FROM NET TERMINAL INCOME WHEN LIVE RACING DOES NOT OCCUR. (a) A video lottery retailer or video lottery manager shall promptly and fully make each payment or transfer from the net terminal income required under this chapter on behalf of the video lottery terminal establishment at the racetrack even if live racing at that racetrack is shortened, canceled, or delayed for any reason.

(b) If a horse racetrack fails to request the minimum number of required live race dates or fails to offer the minimum number of required live races despite issuance of live race dates, does not receive a waiver of that violation from the Texas Racing Commission as provided under this subchapter, and does not have an agreement with the affected state horse breed registries and horsemen's organization, the applicable state horse breed registries and the horsemen's organization may, in their sole discretion, transfer all money to which they are entitled under this chapter from that racetrack to the respective accounts under their control at another racetrack or racetracks.

(c) If a greyhound racetrack fails to request the minimum number of required live race dates or fails to offer the minimum number of required live races despite issuance of live race dates, does not receive a waiver of that violation from the Texas Racing Commission as provided under this subchapter, and does not have an agreement with the affected officially recognized greyhound breed registry, the Texas Greyhound Association may, in its sole discretion, transfer all money to which the association is entitled under this chapter from that racetrack to the account under its control at another racetrack or racetracks.

Sec. 466.595. EQUINE RESEARCH FUNDING; USES OF TEXAS CANINE DEVELOPMENT FUND OR TEXAS EQUINE DEVELOPMENT FUND AT EACH RACETRACK. (a) The amount equal to 0.025 percent of the net terminal income generated at a video lottery terminal establishment at a horse racetrack shall be transferred from the Texas equine development fund for that racetrack to the equine research account of the Texas Agricultural Experiment Station for use in equine research, including facilities development under Subchapter F, Chapter 88, Education Code. The money transferred under this subsection shall supplement, and may not replace, funding provided under the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes).

(b) Each video lottery retailer or video lottery manager that operates a video lottery terminal establishment at a racetrack shall, at least weekly, transfer to the racing facilities capital improvement account from the racetrack's Texas equine development fund or Texas canine development fund, as applicable, an amount equal to one-half of one percent of the net terminal income unless a racing facilities agreement providing for a different amount is filed with the Texas Racing Commission.

(c) Unless an agreement between the state horse breed registries and the horsemen's organization provides otherwise, and after any other allocations required by this subchapter, the remainder of the money deposited in the Texas equine development fund at a horse racetrack must:

(1) be used for purses and the Texas-bred incentive programs and may be used for other programs considered beneficial to the equine industry, including:

(A) equine retirement, adoption, and retraining programs;

(B) programs to test for banned performance-enhancing equine drugs, performance-enhancing drug testing research, and equipment and facilities of laboratories providing those services in this state; and

(C) other programs to improve the working environment in stable areas of racetracks; and

(2) be allocated as follows:

(A) the amount equal to 4.43 percent of the net terminal income to the horsemen's organization to supplement Thoroughbred racing purses;

(B) the amount equal to 2.385 percent of the net terminal income to the horsemen's organization to supplement quarter horse racing purses;

(C) the amount equal to 2.38 percent of the net terminal income to the Thoroughbred state horse breed registry; and

(D) the amount equal to 1.28 percent of the net terminal income to the quarter horse state horse breed registry.

(d) From the money allocated under Subsection (c)(2)(A), pursuant to an agreement between the Texas Arabian Breeders Association and the horsemen's organization, the horsemen's organization shall allocate a portion of the money for purses for the Arabian horse racing industry. The agreement must provide that not less than the amount equal to 0.199 percent of the net terminal income be allocated for Arabian horse racing purses. If an agreement is not made, the horsemen's organization shall transfer to the Texas Arabian horse racing industry the amount equal to 0.199 percent of the net terminal income for Arabian horse racing purses.

(e) From the money allocated under Subsection (c)(2)(B), pursuant to an agreement between the Texas Paint Horse Breeders' Association and the horsemen's organization, the horsemen's organization shall allocate a portion of the money for purses for the paint horse racing industry. If the agreement is not made, the horsemen's organization shall transfer to the paint horse racing industry an amount equal to 0.072 percent of the net terminal income for paint horse racing purses.

(f) From the money allocated under Subsection (c)(2)(C), pursuant to an agreement between the Texas Arabian Breeders Association and the Thoroughbred state horse breed registry, the registry shall allocate a portion of the money for the Arabian horse racing industry state-breed programs. The agreement must provide that not less than the amount equal to 0.107 percent of the net terminal income be allocated for Arabian state-breed programs. If an agreement is not made, the Thoroughbred state horse breed registry shall transfer to the Texas Arabian horse racing industry for state-breed programs the amount equal to 0.107 percent of the net terminal income.

(g) From the money allocated under Subsection (c)(2)(D), pursuant to an agreement between the Texas Paint Horse Breeders' Association and the quarter horse state horse breed registry, the registry shall allocate a portion of the money for state-breed programs for the paint horse racing industry. If an agreement is not made, the registry shall transfer to the paint horse racing industry an amount equal to 0.038 percent of the net terminal income for paint horse state-breed programs.

(h) Following the other transfers and allocations required by this subchapter, the remainder of the money deposited in the Texas canine development fund at a greyhound racetrack is allocated as follows:

(1) the amount equal to 4.75 percent of the net terminal income to supplement greyhound racing purses;

(2) the amount equal to 4.75 percent of the net terminal income to supplement accredited Texas-bred greyhound purses; and

(3) the amount equal to two percent of the net terminal income to the Texas Greyhound Association as the state greyhound breed registry.

(i) The Texas Racing Commission may adopt rules to administer this section and shall require the electronic transfer of funds to the accounts described in this section.

Sec. 466.5955. RACING FACILITIES AGREEMENT; LIMITATION ON USES OF RACING FACILITIES CAPITAL IMPROVEMENT ACCOUNT. (a) For purposes of Sections 466.593 and 466.595, a racing facilities agreement for a horse racetrack is valid only on approval of the applicable racetrack and a majority of the quarter horse state horse breed registry, the Thoroughbred state horse breed registry, and the horsemen's organization.

(b) For purposes of Sections 466.593 and 466.595, a racing facilities agreement for a greyhound racetrack is valid only on approval of the racetrack and the Texas Greyhound Association.

(c) A racing facilities agreement filed under Section 466.593 or 466.595 remains in effect until it expires on its own terms or until it is superseded by a subsequent racing facilities agreement for the same racetrack.

(d) Unless a racing facilities agreement provides otherwise, the money in the racing facilities capital improvement account may be spent only for the maintenance and improvement of pari-mutuel racing facilities.

Sec. 466.596. USES OF PERFORMANCE HORSE DEVELOPMENT FUND. (a) In this section, "performance and recreational horses" means horses bred or trained for public competition and exhibition or recreational use in all legally permitted equine activities other than horse racing at racetracks.

(b) Money in the performance horse development fund may be spent only for:

(1) the development of the horse agricultural industry in this state through efforts intended to attract, retain, promote, and encourage the breeding, raising, training, and exhibition of performance and recreational horses in this state; and

(2) events and programs conducted in this state.

(c) Money from the performance horse development fund is allocated as follows:

(1) 40 percent to the American Quarter Horse Association for its sanctioned events and programs;

(2) 20 percent to the National Cutting Horse Association for its sanctioned events and programs;

(3) 20 percent to the American Paint Horse Association for its sanctioned events and programs; and

(4) 20 percent to the Department of Agriculture to promote the equine agricultural industry in this state.

(d) Subject to Subsection (e), money transferred to an association or agency from the performance horse development fund may be used for:

(1) purse supplements or additional money for performance and recreational horse events conducted in this state;

(2) the establishment of an accredited Texas Bred Program for breeding of performance and recreational horses;

(3) the marketing and promotion of performance and recreational horse activities and events in this state; and

(4) scholarship programs.

(e) Money may be transferred under Subsection (c)(4) only to organizations of the equine industry in this state that are not receiving money for events and programs under Subsection (c)(1), (2), or (3).

(f) Except as otherwise provided by law, all money paid to the Department of Agriculture is subject to Subchapter F, Chapter 404.

Sec. 466.597. LIABILITY OF VIDEO LOTTERY RETAILER AND VIDEO LOTTERY MANAGER. (a) A video lottery retailer, video lottery manager, or both, are jointly and severally liable to the commission for the state's share of net terminal income.

(b) Net terminal income received by the video lottery retailer or video lottery manager is held in trust for the benefit of this state before delivery of the state's share to the commission or electronic transfer to the state treasury, and the video lottery retailer or video lottery manager, or both, are jointly and severally liable to the commission for the full amount of the money held in trust.

(c) If the video lottery retailer or video lottery manager is not an individual, each officer, director, or owner of the video lottery retailer or video lottery manager is personally liable to the commission for the full amount of the money held in trust, except that shareholders of a publicly held corporation shall be liable in an amount not to exceed the value of their equity investment.

(d) The money derived from video lottery proceeds that is required under this chapter to be transferred to the Texas equine development fund or the performance horse development fund is held in trust by the video lottery retailer or video lottery manager, as applicable, for the benefit of the persons designated in this chapter to receive money from the funds. On Wednesday of each week, the retailer or manager shall transfer the money accrued in the funds during the week ending on the preceding Saturday to the depository accounts maintained by the persons entitled to money from the funds under this chapter. If the retailer or manager fails to transfer the money as required under this subsection, a person entitled to money from the funds under this chapter may file a civil action against the retailer or manager for relief, including damages and specific performance.

Sec. 466.598. PRIZE PAYMENT AND REDEMPTION. (a) Payment of prizes is the sole and exclusive responsibility of the video lottery retailer or video lottery manager. A prize may not be paid by the commission or this state except as otherwise authorized.

(b) Nothing in this subchapter limits the ability of a video lottery retailer or video lottery manager to provide promotional prizes in addition to prize payouts regulated by the commission.

(c) A video lottery ticket must be redeemed not later than the 180th day following the date of issuance. If a claim is not made for prize money on or before the 180th day after the date on which the video lottery ticket was issued, the prize money becomes the property of the video lottery terminal establishment.

(d) The commission shall enact rules consistent with this section governing the use and redemption of prizes and credits recorded on electronic player account records, such as players' club cards and smart cards.

Sec. 466.599. REVOCATION OF LICENSE, REGISTRATION, SUITABILITY FINDING, OR OTHER REGULATORY APPROVAL. (a) The commission shall revoke or suspend a license, certificate of registration, finding of suitability, or other affirmative regulatory approval issued under this subchapter if the holder at any time fails to meet the eligibility requirements set forth in this subchapter.

(b) Failure to timely remit revenue generated by video lottery terminals to the commission or any tax or other fee owed to this state as demonstrated by report from the applicable taxing authority or to timely file any report or information required under this subchapter as a condition of any license, certificate of registration, finding of suitability, or other affirmative regulatory approval issued under this subchapter may be grounds for suspension or revocation, or both, of a license, registration, suitability, or approval issued under this subchapter.

Sec. 466.600. HEARING FOR REVOCATION OR SUSPENSION. (a) Before the commission revokes or suspends a video lottery terminal provider's registration or approval or video lottery retailer's or video lottery manager's license, or imposes monetary penalties for a violation of this subchapter, the commission shall provide written notification to the license, certificate, or approval holder of the revocation, the period of suspension, or the monetary penalty. The notice shall include:

(1) the effective date of the revocation or the period of suspension or the amount of the monetary penalty, as applicable;

(2) each reason for the revocation, suspension, or penalty;

(3) an explanation of the evidence supporting the reasons;

(4) an opportunity to present the holder's position in response on or before the 15th day after the effective date of the revocation; and

(5) a statement explaining the holder's right to an administrative hearing to determine whether the revocation, suspension, or penalty is warranted.

(b) The commission shall adopt rules to implement this section.

Sec. 466.601. ABSOLUTE PRIVILEGE OF REQUIRED COMMUNICATIONS AND DOCUMENTS. (a) Any communication, document, or record of a video lottery central system provider, video lottery terminal provider, video lottery retailer, or video lottery manager, an applicant, or a holder of a license, certificate of registration, finding of suitability, or other affirmative regulatory approval that is made or transmitted to the commission or any of its employees to comply with any law, including a rule of the commission, to comply with a subpoena issued by the commission, or to assist the commission or its designee in the performance of their respective duties is absolutely privileged, does not impose liability for defamation, and is not a ground for recovery in any civil action.

(b) If a communication, document, or record provided under Subsection (a) contains any information that is privileged under state law, that privilege is not waived or lost because the communication, document, or record is disclosed to the commission or any of the commission's employees.

(c) The commission shall maintain all privileged information, communications, documents, and records in a secure place as determined in the commission's sole discretion that is accessible only to members of the commission and authorized commission employees.

Sec. 466.602. INTELLECTUAL PROPERTY RIGHTS OF COMMISSION. The legislature finds and declares that the commission has the right to establish ownership of intellectual property rights for all lottery products, including video lottery terminals and related video lottery equipment.

SECTION 30. Section 467.001, Government Code, is amended by amending Subdivision (9) and adding Subdivision (12) to read as follows:

(9) "Person that has a significant financial interest in the lottery" means:

(A) a person or a board member, officer, trustee, or general partner of a person that manufactures, distributes, sells, or produces lottery equipment, video lottery equipment, video lottery games, video lottery central systems, supplies, services, or advertising;

(B) an employee of a video lottery terminal provider, video lottery central system provider, or person that manufactures, distributes, sells, or produces lottery equipment, supplies, services, or advertising or video lottery equipment or games and that employee is directly involved in the manufacturing, distribution, selling, or production of lottery equipment, supplies, services, or advertising or video lottery equipment or games;

(C) a person or a board member, officer, trustee, or general partner of a person that has made a bid to operate the lottery in the preceding two years or that intends to make a bid to operate the lottery or an employee of the person if the employee is directly involved in making the bid; or

(D) a sales agent, video lottery retailer, video lottery manager, video lottery terminal provider, or video lottery central system provider.

(12) "Video lottery central system," "video lottery equipment," "video lottery game," "video lottery manager," "video lottery retailer," and "video lottery terminal provider" have the meanings assigned by Section 466.002.

SECTION 31. Section 467.021(a), Government Code, is amended to read as follows:

(a) The commission is composed of:

(1) three voting members appointed by the governor with the advice and consent of the senate; and

(2) the comptroller, who serves as an ex officio, nonvoting member.

SECTION 32. Section 467.031, Government Code, is amended to read as follows:

Sec. 467.031. DIVISIONS; DIRECTOR; CONTRACT. The commission shall establish separate divisions to oversee bingo and the state lottery. The commission shall employ a director to oversee video lottery and shall enter into an intra-agency agreement with the Texas Racing Commission for the Texas Racing Commission to be responsible for performing the inspections and regulatory functions specified in the agreement at racetracks on behalf of the Texas Lottery Commission.

SECTION 33. Section 467.035(a), Government Code, is amended to read as follows:

(a) The commission may not employ or continue to employ a person who owns a financial interest in:

(1) a bingo commercial lessor, bingo distributor, or bingo manufacturer; or

(2) a lottery sales agency, [or] a lottery operator, a video lottery retailer, a video lottery manager, a video lottery terminal provider, a video lottery central system provider, or a manufacturer of video lottery games.

SECTION 34. Section 467.108, Government Code, is amended to read as follows:

Sec. 467.108. REPRESENTATION BY FORMER OFFICER OR EMPLOYEE. (a) A former commission member, former executive director, or former director may not:

(1) [for compensation,] represent a person, either with or without compensation, [that has made or intends to make a bid to operate the lottery] before the commission before the fifth [second] anniversary of the date that the person's service in office or employment with the commission ceases;

(2) represent any person or receive compensation for services rendered on behalf of any person regarding a particular matter in which the former officer or employee participated during the period of service or employment with the commission, either through personal involvement or because the matter was within the scope of the officer's or employee's official responsibility; or

(3) [for compensation] communicate on behalf of any person, whether compensated or not compensated, directly with a member of the legislative branch to influence legislation on behalf of a person that has any [a significant financial] interest in the lottery, before the fifth [second] anniversary of the date that the person's service in office or employment with the commission ceases.

(b) A person commits an offense if the person violates this section. An offense under this section is a felony of the third degree [Class A misdemeanor].

SECTION 35. Section 411.108, Government Code, is amended by adding Subsection (d) to read as follows:

(d) The Texas Lottery Commission may obtain from the department, subject to an interagency agreement entered into under Section 466.020(d) or 466.206, criminal history record information maintained by the department that relates to any natural person, corporation, association, trust, partnership, limited partnership, joint venture, government, subsidiary, or other entity, regardless of its form, structure, or nature that the commission has the authority to investigate under Chapter 466 as related to the commission's operation and oversight of video lottery. Criminal history record information obtained by the commission under this subsection may be released or disclosed only as provided in Sections 466.022(d) and 466.206.

SECTION 36. Section 47.06(e), Penal Code, is amended to read as follows:

(e) An offense under this section is a felony of the third degree [Class A misdemeanor].

SECTION 37. Section 47.09, Penal Code, is amended by amending Subsection (a) and adding Subsection (c) to read as follows:

(a) It is a defense to prosecution under this chapter that the conduct:

(1) was authorized under:

(A) Chapter 2001, Occupations Code;

(B) Chapter 2002, Occupations Code; or

(C) the Texas Racing Act (Article 179e, Vernon's Texas Civil Statutes);

(2) consisted entirely of participation in gambling or other gaming activity that:

(A) is or may be permitted under the Indian Gaming Regulatory Act (Pub. L. No. 100-497), without regard to whether the gambling or gaming activity is conducted by an Indian tribe to which that Act applies; and

(B) is conducted:

(i) by an Indian tribe or tribal organization that was included on the January 30, 1998, list of recognized Indian tribes by the United States secretary of the interior as required under 25 U.S.C. Section 479a-1; and

(ii) on premises designated by the tribe or tribal organization for that gambling or other gaming activity on land that was held in trust or recognized as tribal land of that tribe or tribal organization by the federal government on January 1, 1998;

(3) was a necessary incident to activity described by Subdivision (2);

(4) consisted entirely of participation in the state lottery, including the video lottery system, authorized by Chapter 466, Government Code; or

(5) [(3)] was a necessary incident to the operation of the state lottery, including the video lottery system, and was directly or indirectly authorized by:

(A) Chapter 466, Government Code;

(B) the lottery division of the Texas Lottery Commission;

(C) the Texas Lottery Commission; or

(D) the director of the lottery division of the Texas Lottery Commission.

(c) Subsection (a)(3) applies to a person manufacturing, distributing, possessing, or operating a gambling device with the authorization of the Texas Lottery Commission under Subchapter K, Chapter 466, Government Code.

SECTION 38. Chapter 47, Penal Code, is amended by adding Section 47.095 to read as follows:

Sec. 47.095. INTERSTATE OR FOREIGN COMMERCE DEFENSE. It is a defense to prosecution under this chapter that a person sells, leases, transports, possesses, stores, or manufactures a gambling device with the authorization of the Texas Lottery Commission under Subchapter K, Chapter 466, Government Code, or on behalf of an Indian tribe in connection with activity described by Section 47.09(a)(2) for transportation in interstate or foreign commerce.

SECTION 39. (a) As soon as practicable after the constitutional amendment authorizing a state video lottery system to operate video lottery games at certain horse and greyhound racetracks and providing that federally recognized Indian tribes are not prohibited from conducting games of chance on certain Indian lands proposed by the 82nd Legislature, Regular Session, 2011, is approved by the voters and becomes effective, the Texas Lottery Commission and the Texas Racing Commission shall adopt the rules necessary to implement video lottery in accordance with Subchapter K, Chapter 466, Government Code, as added by this Act.

(b) Before the proposed constitutional amendment is submitted to the voters, the Texas Lottery Commission may expend money from the commission's appropriation for the 2012-2013 state fiscal biennium for purposes of conducting pre-implementation activities to establish the state video lottery system in accordance with Subchapter K, Chapter 466, Government Code, as added by this Act. Notwithstanding Section 466.355, Government Code, the money authorized to be expended under this section may be withdrawn from the state lottery account and considered a part of the transfer of funds from the state lottery account authorized under Section 466.589, Government Code, as added by this Act, to fund the establishment of the state video lottery system.

(c) If the proposed constitutional amendment is approved by the voters, the Texas Lottery Commission and the Texas Racing Commission shall adopt initial rules for purposes of implementing video lottery in accordance with Chapter 466, Government Code, as amended by this Act, not later than December 1, 2011. Chapter 2001, Government Code, does not apply to the adoption of those rules. Rules adopted under this section shall expire not later than September 1, 2014.

(d) Notwithstanding Chapter 466, Government Code, as amended by this Act, the Texas Lottery Commission may not issue a video lottery retailer or video lottery manager license to an applicant under that chapter unless the applicant, on or before September 1, 2011, pays to the commission an initial application fee in the following amount:

(1) for an applicant who holds a class 1 racetrack license, $25 million; or

(2) for an applicant who holds a class 2 or class 3 horse racetrack license or a greyhound racetrack license, $15 million.

(e) If the proposed constitutional amendment is not approved by the voters, the Texas Lottery Commission shall reimburse the full amount of the initial application fee paid by an applicant under Subsection (d) of this section not later than December 1, 2011.

SECTION 40. The change in law made by this Act applies only to an offense committed on or after the effective date of this Act. An offense committed before the effective date of this Act is covered by the law in effect when the offense was committed, and the former law is continued in effect for that purpose. For purposes of this section, an offense was committed before the effective date of this Act if any element of the offense was committed before that date.

SECTION 41. Sections 1 through 38 and 40 of this Act take effect on the date the constitutional amendment authorizing a state video lottery system to operate video lottery games at certain horse and greyhound racetracks and providing that federally recognized Indian tribes are not prohibited from conducting games of chance on certain Indian lands proposed by the 82nd Legislature, Regular Session, 2011, becomes effective. Section 39 of this Act and this section take effect immediately if this Act receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for immediate effect, Section 39 of this Act and this section take effect September 1, 2011.